Same Jobs Report, Different Conclusions

Economists were trying to put the "it's all good" spin on today's employment report, but the financial markets were taking a less euphoric view.

The Labor Department reported the economy gained 58,000 nonfarm payrolls in March, making last month the first since July with positive job growth. That's because February's previously reported gain of 66,000 was revised to a decline of 2,000.

The March job tally was slightly ahead of expectations but so was the unemployment rate, which rose to 5.7% from 5.5% in February vs. expectations for 5.6% joblessness.

The message from the market was that this was, indeed, a weaker-than-expected report. Once as high as 10,335.30, the

Dow Jones Industrial Average

was recently up 0.8% to 10,311.44, after having traded as low as 10,217.39.

3M

(MMM) - Get Report

made a big gain after forecasting better-than-expected first-quarter results.

Broader market averages were improving from midmorning lows but still struggling at midday: the

S&P 500

was recently up 0.1% to 1127.25 vs. its morning high of 1133.31, while the

Nasdaq Composite

was down 0.7% to 1777.20 after trading as high as 1803.21 in the early going.

Unsubstantiated rumors that

IBM

(IBM) - Get Report

will warn after the bell weighed on stock proxies, but so, too, did fallout from the employment report.

In the Treasury bond market, the benchmark 10-year note was recently up 9/32 to 92 12/32, its yield at 5.22%. Given the bond market fears economic strength because it may foster inflation, the Treasury market's rally was a clear indication of how fixed-income traders viewed the jobs report.

But as noted above, many economists were taking a different tack.

"The employment report showed further signs that the labor markets are stabilizing," commented Sue Iwanski, an economist at Banc of America Securities.

Payrolls are following their "typical pattern of lagging demand and production," she wrote, noting businesses often increase output at the beginning of a recovery without adding significant numbers of employees.

The increased production is accomplished through more hours for existing employees: The average workweek was 34.2 last month, as expected, but the average for February was revised up to 34.2 from 34.1. Additionally, overtime hours increased to their highest level since January 2001.

Iwanski attributed the unexpected uptick in the unemployment rate to "large month-to-month swings" in the size of the labor force that typically occur at turning points in economic cycles. "We believe the unemployment rate is in the process of peaking," she wrote. The household survey showed the labor force reduced by 260,000 while unemployment rose by 425,000, which accounted for the rise in the jobless rate.

Nevertheless, John Silvia, an economist at Wachovia Securities in Charlotte, N.C., tried to put a positive spin on the higher-than-expected unemployment rate by suggesting it reflected increased interest in the job market.

"At this stage of the business cycle ... more people are working and more people are looking for work at the same time," he wrote. "Job seekers, sensing that jobs are available, start to pick up their job search."

The rising unemployment rate is "a good signal at this point in the recovery," he suggested, although the March data seem to contradict his theory and I suspect folks out of work would disagree.

Certainly, there were positive elements of the jobs report. In addition to the headline payroll figure, manufacturing posted its smallest decline since December 2000, while hours worked in the beleaguered sector rose for the first time since January 2001. Additionally, overall average hourly wages rose 0.3% vs. expectations for a 0.2% gain.

"These details clearly put a very positive light on current trends in the labor market," wrote Tony Crescenzi, chief bond market strategist at Miller Tabak and a

RealMoney.com

contributor. "While they are not yet strong enough to elicit a rate hike by the

Federal Reserve

, current trends are very positive in terms of the economic outlook."

All that may very well prove true. But the question is whether investors ought to follow the collective wisdom of the financial markets, or of purveyors of the so-called dismal science?

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.